Mumbai: Banks To Report Strong Credit Growth, Stable Asset Quality
Growth across the banking sector continues to remain healthy with systemic credit growth accelerating to 17.7 per cent in May 2026: Reports
MUMBAI: Banks that have so far announced the Q1FY27 provisional updates have registered double digit credit growth supported by a pickup in corporate lending, steady retail growth and sustained traction in MSME and gold loans. While analysts expect Q1FY27 slippages to rise due to
El Nino, crude prices, sluggish job growth, banks’ balance sheets are resilient to absorb any asset quality shock given high provisioning cover of more than 80 per cent.
Growth across the banking sector continues to remain healthy with systemic credit growth accelerating to 17.7 per cent in May 2026, with the nationalised banks outpacing private banks for the seventh straight quarter. While deposit growth is accelerating, the new FCNR (B) deposit rules are expected to further boost it by 150-200 basis points.
Private lender HDFC Bank on Saturday reported a robust business update for the first quarter of FY27 with 15.4 per cent year-on-year growth in gross advances to Rs 30.61 lakh crore. Deposits also grew at a healthy pace, rising 14.7 per cent year-on-year to around Rs 31.70 lakh crore from Rs 27.63 lakh crore a year earlier.
Bank of Baroda’s domestic advances rose 12.5 per cent to ₹9.91 lakh crore while domestic deposits were up 8.1 per cent at ₹12.04 lakh crore. Similarly, Canara Bank, Indian Bank, Yes Bank too reported
strong advances growth of 10.1 per cent, 14 per cent and 18.4 per cent respectively along with double digit advances growth.
“Overall, we believe the public sector banks would continue to outperform the private banks on the asset quality front due to improved loan-mix and better-quality retail loans. This was visible in
post-COVID asset quality trends, where the PSBs did better than the private banks on asset quality front,” said Yuvraj Chaudhary, research analyst at Anandrathi.
“All coverage banks are expected to report largely stable Net Interest Margins (key indicator of profitability) this quarter, sequentially. Not only has the impact from repo rate cuts played, the impact from marginal cost lending rate reduction has also largely played out, with residual impact being offset by term deposit churn.” Says Shivaji Thapliyal, lead sector research analyst at Yes Securities,
Banks have cut interest rates on wholesale deposits. The average Weighted Average Domestic Term Deposit Rate (WADTDR) for private sector banks for the two months of Q1FY27 has declined by 2 basis points to 6.69 per cent, compared with the average for 4QFY26. The corresponding Weighted Average Lending Rate (WALR) was down by 4 bps to 9.89 per cent, implying that loan spread inched lower by 2 bps for private sector banks. For PSU banks, the WADTDR fell around 8 bps to 6.63 per cent and the WALR declined around 4 bps QoQ to 8.36 per cent, which implies that loan spread rose by 4 basis points.